Ahmedabad: In a setback to Essar Steel Ltd, the Ahmedabad bench of the National Company Law Tribunal on Wednesday approved initiating bankruptcy proceedings against the company.

The tribunal, while admitting two petitions filed by the company’s lenders—State Bank of India and Standard Chartered Bank—rejected Essar Steel’s contention that insolvency proceedings should not be initiated against the company as it had already started a debt restructuring process with its creditors.

A senior counsel for Essar Steel said that they were yet to decide on whether to challenge the NCLT judgement before the National Company Law Appellate Tribunal or not.

Last month, Essar Steel had challenged RBI’s directive at the Gujarat high court, which temporarily halted insolvency-related proceedings against the company at NCLT till the high court gave a final order.

The court dismissed Essar Steel’s petition and this paved way for the company’s creditors such as SBI and Standard Chartered Bank to continue their proceedings before NCLT where the matter was listed for hearing.

Justice Bikki Raveendra Babu appointed Satish Kumar Gupta of Alvarez and Marsal India as interim resolution professional (IRP). His name was recommended by SBI in its petition.

On 26 July, lawyers for Standard Chartered Bank and SBI sparred over the appointment of an IRP for Essar Steel under the Insolvency and Bankruptcy Code, 2016. Standard Chartered, in its application to the NCLT, suggested Dinkar Venkatasubramanian, partner, transaction advisory services at consulting firm EY as the IRP. Standard Chartered had said Essar Steel owed the bank $538 million.

Standard Chartered lawyers had argued that since the bank had moved its application to NCLT against Essar Steel on 27 June, before any other creditors of the company, its suggestion should be accepted by NCLT if its petition is admitted.

Under the IBC, a moratorium period of 180 days commences once an application filed by a creditor for initiating insolvency proceedings against a company is admitted by the NCLT. In the moratorium period, the board of the defaulting entity is replaced by an IRP, who discharges the functions of the board until the resolution process is completed.

Essar Steel owed lenders around Rs45,000 crore, of which Rs31,671 crore had become non-performing as of 31 March 2016. The company owes as much as 93% of this amount to a consortium of 22 creditors led by SBI. Lawyers representing SBI had argued that Standard Chartered Bank was not a secured creditor and hence its choice of an IPR should not be accepted by the tribunal.

Essar Steel, objecting to SBI and Standard Chartered’s petitions, told the tribunal that the company had a crude steel capacity of 10 million tonnes per annum for which it has several long-term contract with central and state entities for supply of raw materials and critical production consumables, which are essential for running the manufacturing facilities of Essar Steel.

The company said it was on the path of recovery and had initiated a corporate debt restructuring process with creditors. The appointment of an IPR and dissolution of the existing board would hamper the company’s recovery and growth, it said.

Essar Steel’s lawyers told the court that they needed more time to negotiate with their lenders and arrive at a final agreement on the company’s restructuring. The tribunal today turned down Essar Steel’s contentions in the matter.